Shared Ownership 2.0

Towards a fourth a mainstream tenure Paul Tennant (Chief Executive, Orbit)

Sarah Davis (Senior Policy and Practice Office, CIH)

A changing market

• Home ownership in decline - down to 65% in 2012/13, from a peak of 71% in 2003

• But home ownership remains the tenure of choice • Emergence of ‘Generation Rent’ – PRS doubled in size since 2000 to 18% … an

estimated 25% by 2019 • Completions last year at half of what is needed to meet demand – house

building projected to increase to 152,000 a year by 2019 … still a shortfall of about 90,000

• Demographic pressure to drive demand – projected 10% rise in the number of households … 221,000 per year up to 2021

Source: UK Census, Savills Research

Home ownership – a shattered dream?

• Less than one fifth of families on lower quartile income can afford a 2-bed home with a 90% mortgage

• House prices have long been outstripping wages – average earnings in 2015 forecasted to rise by 2% versus house prices by 7.4%

• London, a market in its own right – house price inflation in 2014 at 21%, twice the national rate

• Deposit barrier – would take the average couple with a child almost 12 years to save up a deposit on 2-bed home

Why shared ownership?

• Challenges in UK housing market are complex and require multiple solutions – no silver bullet

• Affordability and aspiration - delivers social and economic returns … a couple with one child on a net income of £25k could afford a 25% share of 2-bed home in almost 90% of LA areas and 50% share in 75% LA areas … but same family would struggle to service a Help to Buy mortgage in 71% of LA areas … median income of £27k for SO compared to average of nearly £40k on a 80% mortgaged home … average monthly costs for SO cheaper than PRS (£668 and £784 respectively)

Why shared ownership?

“Without shared ownership I don’t think I would have been able to purchase a house suitable for my family due to my households income not allowing for a large mortgage and no savings.”(Orbit Shared Owner) “For many people in the South East, shared ownership is not just the most affordable housing option, it’s the only affordable housing option.” (Marilyn DiCara, Director of Sales & Marketing, Moat)

• Good value and social return for tax payer – grant released through

staircasing reinvested into new homes ... and approx. £15k of grant per SO unit versus average cost of £41,897 for Help to Buy loan

What we did

• Explored barriers, challenges and policy solutions … across brand, product and investor/lender confidence - huge opportunity for SO, but…!

• Gathered expert and practitioner views and reviewed existing research • Talked to current and possible future customers • Synthesised data, views and experiences to demonstrate the potential of SO

becoming fourth mainstream tenure

Challenges and recommendations

The product and brand

Scale (diversity)

Investment

Product and brand

Awareness

Access

A ‘social product’?

Simplified and consistent

Flexibility to life cycle

Managing costs

‘We underestimate what we can do as a

sector to improve the product and promote

it better…we can go a long way to

resolving some of the issues holding

shared ownership back’

Steve Michaux, A2Dominion

We need:

Clear and effective communication

Services that: support to move within tenure; enable effective financial

planning; manage costs; promote choice and control

Consistent and streamlined product – confidence for customer, lender

and investor

Incentivising through local plans

Demonstrating the value of tenure – consistent data collection

‘Hard evidence is a powerful tool… we need to…collect the right data…to support the

case for growing shared ownership as a tenure’

Tim Willcocks, Radian Grp

Scale

Ambition to double delivery to 13% of total homes required

Make it an attractive product to develop

Attracting lenders – addressing perceptions of risk

Tackling constraints on numbers

Creating a strong secondary market

Looking at diverse funding streams

Investment

Value for money of shared ownership

Average grant £15,000

Helping different set of customers to Help to Buy – social return

Plus additional ways to fund

Core purpose for HAs

Repayable equity funding

Institutional investment

Balance attractive returns and affordability

Institutional investors

Improving the product for customers

Balance with attractive returns

Most recommendations work for both

Repairs costs – different models have different impacts

We need:

Better measurement of risk for lenders – capital weighting

And data!

Mainstream tenure

Ongoing grant

Equity loan models

Modelling impact for affordability/ provider returns